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Sector: Financial Services
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Fundamental View
AS OF 06 Sep 2024IBK benefits from a legally binding solvency guarantee from the Korean government and is viewed as a Korean quasi-sovereign issuer. The bank is listed, but remains majority state-owned. Previous governments had proposed privatizing it, but subsequent governments scrapped these plans. The government intends to keep its stake above 50%, and wants IBK to focus on lending to SMEs and provide earlier stage investment capital.
IBK manages the difficult feat of combining its policy role to support Korean SMEs with performance that compares creditably with Korean commercial banks.
Business Description
AS OF 04 Sep 2024- IBK was established under its own Act in 1961 to assist the development of Korea's small business sector. It claims a 23% market share in SME lending.
- It was listed in the early 1990s, but was re-nationalised following heavy losses in the Asian economic crisis of the late 1990s. It was re-listed in 2003, and is majority owned by the government which holds 59.5%; the National Pension Scheme holds 5.6%, and other policy banks have small stakes (7.2% by Korea Development Bank and 1.8% by the Export-Import Bank of Korea).
- Under Article 43 of the IBK Act, if the bank incurs losses they should be set against its reserves and "if the reserves are not sufficient the Government shall assume the remaining loss". Although this is a solvency guarantee and not an explicit guarantee for the timely payment of debts, we believe the Korean government will ensure IBK is in a position to make such timely payments.
Risk & Catalysts
AS OF 07 Jan 2025The bank’s ratings are closely tied to the Korean sovereign’s ratings due to its quasi-sovereign status.
Its ratings and its default risk should therefore not be impacted by any deterioration in its financials, provided the government continues to inject new capital when needed, which it is expected to.
Its policy mandate requires it to use at least 70% of its funding for SMEs. Risks are mitigated by its granular SME exposures which are more than 80% secured, including guarantee from state-owned credit guarantee agencies. Korean governments have also always been quick to provide support including capital injections to IBK when needed, with the most recent injection of KRW 1.3 tn during the COVID.
Key Metric
AS OF 04 Sep 2024| KRW bn | FY20 | FY21 | FY22 | FY23 | 1H24 |
|---|---|---|---|---|---|
| Pre-Provision Operating Profit / Average Assets | 1.33% | 1.30% | 1.49% | 1.59% | 2.78% |
| ROAA | 0.5% | 0.6% | 0.6% | 0.6% | 0.6% |
| ROAE | 6.4% | 9.2% | 9.5% | 8.8% | 8.7% |
| Provisions/Average Loans | 0.60% | 0.34% | 0.50% | 0.67% | 1.03% |
| Nonperforming Loans/Total Loans | 1.08% | 0.85% | 0.85% | 1.05% | 1.30% |
| CET1 Ratio | 11.1% | 11.3% | 11.1% | 11.3% | 11.6% |
| Total Equity/Total Assets | 6.95% | 6.92% | 6.79% | 7.10% | 7.06% |
| NIM | 1.55% | 1.51% | 1.78% | 1.79% | 1.73% |
CreditSight View Comment
AS OF 23 Sep 2024IBK is not wholly government owned – 59.5% direct government ownership, 7.2% KDB and 1.8% KEXIM – but is a policy bank benefiting from a Korean government solvency guarantee. For a policy bank it also has a fairly good track record and manages the difficult feat of combining its policy role to support Korean SMEs with performance that compares creditably with Korean commercial banks. As the leading lender to Korea’s medium and small businesses, IBK plays a key role in the country’s economy, enhanced by the longstanding objective of numerous administrations to achieve a more diversified economy less reliant on the “chaebol”. Successive Korean governments have always been quick to provide support including capital injections to the policy banks when needed.
Recommendation Reviewed: September 23, 2024
Recommendation Changed: March 17, 2017
Who We Recommend
International Container Terminal Services Inc
BDO Unibank
Woori Financial Group
How may we help you?
Search topics about wealth insights and investments.The Export-Import Bank of Korea
- Sector: Financial Services
- Sub Sector: Banks
- Region: Korea
- Bond: EIBKOR 5.125 33
- Indicative Yield-to-Maturity (YTM): 4.55%
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Fundamental View
AS OF 14 Aug 2024KEXIM is a pure policy bank that is directly and indirectly wholly owned by the government of the Republic of Korea, which is obliged under Article 37 of the Export-Import Bank of Korea Act to fund any losses that cannot be covered by the bank’s reserves.
While this is a solvency guarantee and does not explicitly guarantee the timely repayment of debt, we view it as inconceivable that the Korean authorities would fail to provide KEXIM with support in a timely manner, should this be needed, given its crucial policy role and close government links.
Business Description
AS OF 14 Aug 2024- KEXIM was set up in 1976 to support Korean companies in their overseas business through export credit guarantee programs, as well as providing finance for imports and for overseas investment. It provides funding for both short term trade and long term investment, and manages two government-entrusted funds: the Economic Development Cooperation Fund (EDCF), a Korean official development assistance program, and the Inter-Korean Cooperation Fund (IKCF), an economic cooperation program to promote exchanges with North Korea. It is also a conduit through which the government doled out COVID-19 assistance to affected companies.
- Till 2030, KEXIM aims to preferentially focus on seven sectors (hydrogen energy, wind and solar power, rechargeable battery and energy storage systems (ESS), future mobility, 5G and next-generation semiconductors, pharmaceutical and healthcare, and digital technology and cultural content) which are considered new growth drivers of the Korean economy. It has historically focused on the shipbuilding and engineering & construction industries.
- KEXIM is 100% owned by the Korean government: 73% directly and the remainder through stakes held by the Bank of Korea (8%) and Korea Development Bank (19%). In contrast to peer policy banks IBK and KDB, KEXIM has remained more consistently a policy bank but its role has been adjusted to ensure it complements rather than competes with the Korean commercial banks.
Risk & Catalysts
AS OF 07 Jan 2025Previous Korean governments have made moves to privatise the other policy banks, but KEXIM has retained its policy bank role and government ownership, which are not likely to change.
Korea’s shipbuilders have long been the largest users of KEXIM’s services. Losses on exposure to the sector, in particular Daewoo Shipbuilding (DSME), pushed KEXIM into the red in 2016 but the government injected capital and its condition has recovered.
Together with KDB, KEXIM has played a key role in helping corporate Korea survive the COVID-19 induced crisis.
Key Metric
AS OF 14 Aug 2024| KRW bn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Pre-Impairment Operating Profit / Average Assets | 1.3% | 1.2% | 1.1% | 1.1% | 1.1% |
| ROAA | 0.5% | 0.1% | 0.5% | 0.4% | 0.6% |
| ROAE | 3.2% | 0.7% | 3.2% | 2.7% | 4.7% |
| Provisions/Average Loans | 0.5% | 1.2% | 0.5% | 0.8% | 0.3% |
| Nonperforming Loans/Total Loans | 2.4% | 1.8% | 1.9% | 1.2% | 0.7% |
| CET1 Ratio | 12.9% | 13.4% | 13.3% | 11.8% | 13.0% |
| Total Equity/Total Assets | 14.9% | 14.8% | 15.1% | 12.6% | 14.3% |
| Net Interest Margin (NIR/Ave Assets) | 1.0% | 0.9% | 0.9% | 0.9% | 0.7% |
CreditSight View Comment
AS OF 07 Jan 2025KEXIM is a wholly government owned policy bank benefiting from a Korean government solvency guarantee. It plays a key role in financing large-ticket exports in particular ships and large-scale overseas engineering projects. Its credit exposures include some industry and borrower concentrations especially to Korea’s shipbuilders and its financial performance has at times suffered. But the Korean government has always acted in a timely manner to endure its solvency, and with this strong backing we view it as a sound credit. We view its secondary levels as in line with where we would expect it to trade, and so continue with our Market perform recommendation.
Recommendation Reviewed: January 07, 2025
Recommendation Changed: September 22, 2020
Who We Recommend
International Container Terminal Services Inc
BDO Unibank
Woori Financial Group